A corporation generates a Net Operating Profit After Tax (NOPAT) of ₹450 Crore with Total Invested Capital of ₹3,000 Crore. If the firm's Weighted Average Cost of Capital (WACC) is 11.0%, what is the Economic Value Added (EVA) created by management?

[ A ]+₹120 Crore [ NOPAT minus Capital Charge: ₹450 - (₹3,000 * 11.0%) = ₹450 - ₹330 ][ CORRECT ]

[ B ]+₹450 Crore (NOPAT without deducting cost of capital)

[ C ]-₹120 Crore (Negative value creation)

[ D ]+₹330 Crore (Capital charge alone)

Takeaway

Option A is correct: +₹120 Crore [ NOPAT minus Capital Charge: ₹450 - (₹3,000 * 11.0%) = ₹450 - ₹330 ]

Derivation

NOPAT is given directly as ₹450 Crore. The Capital Charge represents the minimum return the firm must generate just to compensate everyone who supplied capital, debt and equity alike, for the opportunity cost of that capital: Invested Capital × WACC = ₹3,000 Cr × 11.0% = ₹330 Crore. EVA = NOPAT − Capital Charge = ₹450 Cr − ₹330 Cr = +₹120 Crore. The positive figure confirms the firm's implied Return on Invested Capital, ₹450/₹3,000 = 15.0%, exceeds its 11.0% WACC hurdle by 4.0 percentage points — this is the exact sense in which EVA differs from ordinary accounting profit, which would report the full ₹450 Crore as 'profit' without ever charging for the equity capital that helped generate it.

Why the others fail

B — +₹450 Crore (NOPAT without deducting cost of capital)

Reports NOPAT of ₹450 Crore on its own without deducting the ₹330 Crore capital charge, which is the entire mechanism that distinguishes EVA from raw accounting profit.

C — -₹120 Crore (Negative value creation)

Flips the sign on what is actually value creation; the firm's 15.0% ROIC exceeds its 11.0% WACC, so EVA is positive, not negative.

D — +₹330 Crore (Capital charge alone)

States the ₹330 Crore capital charge on its own rather than the residual EVA figure of ₹120 Crore left after that charge is deducted from NOPAT.